Correlation Between Japan Tobacco and TAAT Global

Can any of the company-specific risk be diversified away by investing in both Japan Tobacco and TAAT Global at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Japan Tobacco and TAAT Global into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Japan Tobacco ADR and TAAT Global Alternatives, you can compare the effects of market volatilities on Japan Tobacco and TAAT Global and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Japan Tobacco with a short position of TAAT Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and TAAT Global.

Diversification Opportunities for Japan Tobacco and TAAT Global

0.5

Correlation Coefficient

Japan Tobacco  TAAT Global

Very weak diversification

The 3 months correlation between Japan and TAAT is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and TAAT Global Alternatives in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TAAT Global Alternatives and Japan Tobacco is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Japan Tobacco ADR are associated (or correlated) with TAAT Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TAAT Global Alternatives has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and TAAT Global go up and down completely randomly.

Pair Corralation between Japan Tobacco and TAAT Global

Assuming the 90 days horizon Japan Tobacco ADR is expected to under-perform the TAAT Global. But the pink sheet apears to be less risky and, when comparing its historical volatility, Japan Tobacco ADR is 14.12 times less risky than TAAT Global. The pink sheet trades about -0.11 of its potential returns per unit of risk. The TAAT Global Alternatives is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  20.00  in TAAT Global Alternatives on September 22, 2024 and sell it today you would lose (5.00) from holding TAAT Global Alternatives or give up 25.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Japan Tobacco ADR  vs.  TAAT Global Alternatives

Japan Tobacco ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Tobacco ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

TAAT Global Alternatives

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TAAT Global Alternatives are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, TAAT Global reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Tobacco and TAAT Global

The main advantage of trading using opposite Japan Tobacco and TAAT Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Tobacco position performs unexpectedly, TAAT Global can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in TAAT Global will offset losses from the drop in TAAT Global's long position.

The idea behind Japan Tobacco ADR and TAAT Global Alternatives pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.